UN links cryptocurrency to Southeast Asia's underground economies

The United Nations Office on Drugs and Crime has issued a report cautioning that cryptocurrency is being utilized for illicit activities in emerging East and Southeast Asian economies.

The report states that organized crime is leveraging the latest technological advancements, presenting new and intricate challenges for law enforcement.

According to the report, the Mekong Region has witnessed a significant rise in poorly regulated or illicit casinos as well as "pig-butchering" romance scams. These emerging economic models display a high level of sophistication. The report highlights that the rapid advancements in large language model-based chatbots, deepfake technology, and automation have contributed to the development of more intricate and harmful cyber fraud schemes. Consequently, these pose a significant danger to both individuals and the formal banking industry. 

Criminals are employing another method by setting up illegal gambling and scam activities in loosely regulated special economic zones and areas controlled by armed groups with autonomy. This has led to the emergence of a specialized travel sector centered around casinos. These travel operators, often referred to as junket operators, go beyond offering travel and lodging services.

Junket operators are now performing functions similar to international banks, providing a range of illicit financial services such as lending, currency exchange, and facilitating payments and settlements in multiple currencies. They also engage in underground practices like money transfers and unconventional debt collection methods, all of which have been exploited by organized crime. 

The report highlighted that the Tron blockchain has become a hotbed for financial miscreants in the region, with the use of Tether (USDT) stablecoin being their top choice. This preference can be attributed to the stablecoin's remarkable stability, user-friendly interface, anonymous nature, and minimal transaction fees.

Crypto exchanges in the area might also contribute to money laundering due to significant gaps in tracking criminal activity on the blockchain, false reporting by crypto exchanges, and the common practice of wash trading, which artificially increases crypto transaction volumes and reduces the amount of illegal transactions detected. The report contained numerous recommendations for increasing awareness and implementing policies to combat financial crime in the region.

Casinos, junkets & #crypto: major drivers of #moneylaundering, underground banking & #cyberfraud in East and Southeast Asia. New policy brief 👉 https://t.co/RESssnqPTG #organizedcrime #Mekong #ASEAN pic.twitter.com/Oeunz54fUZ

— UNODC SEAsia-Pacific (@UNODC_SEAP) January 15, 2024

Circle's USD Coin (USDC) on Tron has also faced similar allegations from a nonprofit group. Additionally, an investigation conducted by Reuters has linked Tron to illicit financing in the Middle East. In December, China took strict measures against the use of USDT in foreign exchange. Tether, the largest stablecoin with a market cap of nearly $95 billion, has been actively collaborating with U.S. law enforcement agencies to ensure compliance.

Stablecoins have emerged as valuable assets in various scenarios involving foreign exchange and decentralized finance. Their popularity is skyrocketing as governments across the globe are implementing regulations to govern their usage.